Giving Wind Energy a Gust of Profitability

Despite costs falling by over 80% in recent years, wind energy is still a prohibitive industry. The majority of wind farms requireextensive federal and state subsidiesto operate at a profit. Since subsidies are based on the energy produced, big companies can easily muscle-out and acquire smaller firms. At the same time, there’s a vast market distortion over where wind power is produced and where that power is needed.

It isn’t a very business-friendly system. Marc Gunther ofWiredsums up the problem well:
It isn’t that wind power itself is a losing technology, we’re simply investing in the wrong aspects of wind generation. In many areas where wind generation is big business (think Texas, Arizona, and California), there’s such an abundance of wind power that prices are actually running negative. In other places, there’s such a scarcity of energy that prices are at new highs.

Once again, well-intentioned government subsidies may be to blame. Agriculture has dealt with this before, where family farms are frequently snapped up by multinationals like Archer Daniels Midland thanks to amaze of confusing and overlapping corn subsidies. The more you make, the more you get. But wind energy is a little different - producing a lot of it is meaningless unless consumers can get it. It’s a lot like growing a bunch of corn and forgetting the trucks needed to take it to market.

Think
of it visually. Right now, a wind producer in Phoenix produces so much energy that he’s only paid, say, 10 cents per unit. By contrast, a wind enthusiast in Chicago has such a restricted supply of power that she pays 90 cents per unit. By building a transmission line owned by the Phoenix wind farm, the producer can sell energy to the Chicago grid for 50 cents per unit, and our consumer purchases that energy for 60 cents. Both seller and buyer have improved their situation by developing a transmission line. The emphasis is no longer on quantity, but a mixture of quantity and quality.

Gunther
argues that the government should take a more active role in developing long-distance transmission lines, relaxing land purchasing rules and fast-tracking development over local complaints. “Constructing transmission lines and figuring out who should pay for them is a regulatory morass,”Gunther writes. “Typically, costs are passed along to utility companies through an arcane bureaucratic process involving local, state, and federal authorities.”

Gunther
is correct on the problem but wrong on the solution. Giving government yet more power to buy up vast chunks of land for transmission lines and overrule development restrictions is short-sighted. This only adds to analready complicated system of electrical transmission regulations. The best plan is to get rid of those wasteful production subsidies and use the money to encourage transmission line growth.

At
the same time, government should significantly relax its regulations on constructing power lines. By allowing clean fuel companies to build lines hassle-free, construction times could fall from their current peak of 2-5 years and energy producers will find new markets - and higher prices - for their commodity. More profit means more production, and more production means non-outsourceable, skilled jobs in a growing field.The
expansion of electrical delivery will create new customers, expand service, and necessitate the further expansion of wind technology. As more consumers gain access to low-cost wind power, competition will increase yields, improve technology and lower costs. The current government subsidy system only holds back wind’s potential.